New rights for credit card holders

Posted on: 17 March 2010 by Mark O'haire

The cost of your credit card could be about to fall considerably, thanks to new consumer rights.

Following feedback from thousands of credit card holders, the government is clamping down on "irresponsible lending practices" and the high cost of borrowing.

It has drawn up five 'rights' for the country's 30 million credit card users, which it believes will save them £269 million a year. Nationwide Building Society estimates the changes will give customers an extra £500 million a year.

These measures are to go ahead whatever the result of the forthcoming general election.

Hierarchy of payments

The biggest change is to what's known as the hierarchy of payments. Most credit cards use cardholders' payments to pay off the cheapest debt first, leaving more borrowing accruing interest until all the cheap debt is cleared. Soon, payments will be set against the most expensive debt first.

Under the current system, if you transferred a balance to a credit card with a 0% deal and then used the card for purchases, you'd have to clear the whole interest-free amount before you could repay the spending debt.

In fact, Nationwide and SAGA are the only two providers not to use this so-called negative hierarchy of payments. Nationwide research shows that 65% of credit card customers think it is unfair that providers are making extra money this way.

"This will make a credit card work as it was originally intended - a flexible product which can be used for a variety of purposes and this move ensures there will no longer be the need to carry more than one card for purchases and balance transfers," said Peter Harrison, credit card expert at

Further changes

In addition to the right to repay the most expensive debt first, there are four other new rights:

  • Right to control: customers will have greater control over their cards as they will be given the chance to refuse any future credit limit increases and to reduce their limit whenever they want.
  • Right to reject: people will have more time to reject increases in their interest rates or credit limits.
  • Right to information: anyone at risk of financial difficulties will be given guidance on the consequences of paying back too little, while all customers will be given clear information on any increases in their interest rate or credit limit. That will include information on their right to reject.
  • Right to compare: to help people find the best deal for them, they will be given an annual statement that allows them to compare the cost of their credit card with other providers.

"The annual statement that customers will receive allowing them to compare rates with other card companies more easily is very useful; however an annual review of rates is just not regular enough. (You) should frequently check online to compare credit card rates and if necessary switch to a card which better suits your needs," said Harrison.

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